KPMG has been £1.5mn by the UK accounting regulator due to significant shortcomings in its audit of M&C Saatchi, a prominent advertising agency in Britain.
Britain’s Financial Reporting Council (FRC) announced on Monday that it fined KPMG, citing failures to meet audit standards during its examination of M&C Saatchi’s accounts for the year ending December 2018.
Claudia Mortimore, deputy executive counsel at the FRC is quoted by the Financial Times to have said: “KPMG’s audit fell short of the required quality standards, displaying serious failings and breaches of audit standards.”
Adrian Wilcox, the KPMG partner overseeing the 2018 audit, also faced a fine of nearly £50,000.
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The disclosure of accounting errors compelled M&C Saatchi to revise its reported profits for 2018 and prior years. Subsequently, trading in the company’s shares was suspended for 10 weeks in 2020 as PwC, its new auditor, grappled with discerning the group’s true financial status following the accounting scandal uncovered in 2019.
Once a highly regarded advertising network, particularly known for its work with UK’s Conservative party, M&C Saatchi has encountered challenges amidst tougher market conditions and internal struggles over its direction.
This £1.5mn penalty marks the 16th fine imposed on KPMG since 2018. Last October, the firm received a record £21mn penalty for lapses in its auditing of the collapsed government contractor Carillion.
Despite these penalties and a slower growth trajectory, partners at KPMG received average payouts of £746,000 last year, a 4% increase from the preceding 12 months.
Among the deficiencies in the M&C Saatchi audit cited by the FRC, KPMG allegedly failed to exercise adequate professional skepticism regarding a client payment that inflated revenues by £1.2mn. Additionally, the FRC noted KPMG’s inadequate scrutiny of journal entries across several subsidiary companies.
KPMG served as M&C Saatchi’s auditor since 2012 but resigned in September 2019. It had issued an unmodified audit opinion on the advertising company’s 2018 financial statements.
In addition to the fines, KPMG and Wilcox received severe reprimands and declarations that the audit report did not meet the requisite standards. The fines were reduced from £2.25mn and £75,000 respectively due to early admissions.
Cath Burnet, head of audit at KPMG UK, expressed regret over the shortcomings in the 2018 audit of M&C Saatchi plc, affirming the firm’s commitment to addressing and learning from past cases. She said ongoing investments in audit quality, training, controls, and technology to drive improvements in their audit practice.
